Input tax incurred on termination expenses cannot be attributed to past supplies. However, as the termination of a business is regarded as made in the course or furtherance of that business under the GST Act, expenses incurred for winding up would be regarded as residual input tax subject to apportionment.
Where the business has ceased to make any taxable supplies and thus could not claim any input tax by means of the standard input tax apportionment formula, input tax incurred on termination expenses would be allowed in full by way of administrative concession.
Expenses incurred in periods where the business had ceased and not for the purpose of winding up the business (‘non termination expenses’) are not incurred in the course or furtherance of a business and hence will strictly not be allowed. However, if the taxable person can establish a link between the non termination expense and taxable supplies that were made in the past, he may claim these non-termination expenses, as residual input tax in full. Such expenses include audit fees incurred to audit the periods in which the business was still making taxable supplies. Rental and utilities incurred in periods where the business had ceased will remain disallowed since no link between these expenses and past taxable supplies can be established.
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